Stocks Receive the All-Clear Signal

By "The Greek":

Stocks have been issued the all clear signal with Congressional mitigation of the debt ceiling and a new plateau set for jobless claims. So you can look for an unimpaired January Effect to keep stocks moving in the right direction. At least that should be the case once mega-stock Apple (Nasdaq: AAPL) stops infecting the major indexes with its earnings disappointment this week. As a result of the Apple news, the PowerShares QQQ (Nasdaq: QQQ) was off over one full percentage point at the start of trading Thursday morning, as the SPDR Dow Jones Industrials (NYSE: DIA) held green ground and the SPDR S&P 500 (NYSE: SPY) fought for life.

A new level of Initial Jobless Claims was confirmed this morning, as the second week of a lower plateau for claims seems to indicate the spigot is closing on layoff activity. At 330K, jobless claims for the period ending January 19 were far lower than the economists’ consensus expectation for 360K. Furthermore, the second week of decline brought the four-week moving average down by 8,250, to 351,750. That’s good news for the economy and is clearly reflected in the day’s gains at employment services firms Robert Half International (NYSE: RHI) and Korn Ferry Int’l (NYSE: KFY). Each was up by more than a point before noon Thursday.

Add to that news, the fact that Congress got its act together with regard to the debt ceiling, and has determined to meet its obligations (for now), and you have the recipe for a market burst higher. As much as I would like to believe it was the fear of God and the repercussions of a U.S. default on its obligations that inspired representatives to act, it seems that with the President’s approval rating so high around the inauguration, it simply made sense for Republicans not to kick against the goad now. The government’s budgetary issues have not gone away though, with another showdown set for the end of March, when Congressional leaders will have to avoid a government shutdown. Still, they’ve set good inspiration for effort in place now, with their own paychecks on hold without a budget plan in place by April 15.

Given these important bits of information, you would expect an all-clear signal for stocks to set them higher. Unfortunately, Apple (AAPL) produced a disappointing earnings result last evening, and is holding back broader indexes as a result. However, as the Apple impact fades, investors will be left with good enough reason to buy, in my view, for now. Because of this reasoning, we would set our technical indicators aside for now, despite their offering of significant warning signs for stocks. As indicated in our technical report, a break above 1475 for the S&P cash index could fuel the rally into the second quarter. This is supported by the fundamental macroeconomic drivers added to the picture this week. So, you have your all-clear signal to buy stocks today.

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